Friday
Jul112008

Asset Class Performance in 2008

Individuals who have only been invested in equities this year are no doubt suffering.  Below we highlight the year-to-date performance of various asset classes in 2008.  The results clearly show the importance of asset allocation.  While the S&P 500 is down 15.82%, Treasuries are down just 44 bps, and commodities like gold and oil are up significantly.  With the amount of ETFs out there that track all asset classes, there really is no excuse to not be diversified.

Assetclassperf

At Bespoke, we offer two ways for investors to implement an all-ETF asset allocation strategy.  At Bespoke Premium, we have a Model ETF Portfolio that applies this approach.  For each asset, we provide the recommended weighting (stocks-50%, bonds-25%, etc.) and invest in various ETFs within the asset class that we currently believe are the most attractive.  The Bespoke Premium Model ETF Portfolio has held up exceptionally well for a long-only account during this market downturn, declining just 6.59% since inception last June while the S&P 500 has declined 18.35%.  For investors looking to take a more hands-off approach, Bespoke also offers a professional money management strategy using all ETFs that applies the same asset-allocation principles mentioned above.  For more information, please visit our money management page or call 914-315-1248.

Friday
Jul112008

Key Earnings Reports Next Week

In the chart below, we highlight the number of companies reporting earnings on each trading day through August 8th.  While things do start to pick up next week, they don't really get going until the following week.  Next Thursday (the 17th) will be the most active for earnings, with 93 companies releasing their quarterly results.

Epsreports

As we mentioned above, next week isn't the most active for earnings, but there are still quite a few key stocks reporting.  Below we highlight some of the most widely followed stocks releasing earnings next week.  As shown, DNA reports after the close on Monday, JNJ and INTC lead the reports on Tuesday, WFC and EBAY headline Wednesday, BLK, HOG, JPM, KO, NUE, SPWR, UTX, GOOG, IBM, MER and MSFT all report on Thursday, and C and HON wrap things up on Friday. 

For each stock, we provide its current EPS estimate and the four-week change in that estimate.  We also provide the percentage of the time since 2001 that the stock beat earnings and revenue estimates and guided higher.  Finally, we provide the average 1-day change in the stock on the first trading day following past reports.  Stocks highlighted in yellow have generally had the best reports and price reactions in the past.

If you're looking for more in-depth earnings analysis and stock ideas throughout earnings season, sign up for Bespoke Premium and access these reports today.

Epsreportskey 

Friday
Jul112008

Percentage of Stocks Above 50-Day Moving Averages

Currently, just 14% of stocks in the S&P 500 are trading above their 50-day moving averages.  While this is extremely oversold, the number got down to 8% last August and 11% in January.

Financials and Industrials are the sectors struggling the most.  Each of them have just 2% of stocks trading above their 50-days.  Consumer Discretionary isn't far behind at 5%, however.  The two sectors that look the best at the moment are Health Care and Utilities.  Health Care has 42% above their 50-days, while the Utilities sector sits at 39%.

Spx50day

Finlindu50day

Inftenrs50day

Condcons50day

Hlthmatr50day

Utiltels50day

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Friday
Jul112008

Lehman and Merrill Lynch Default Risk Charts

Below we highlight default risk charts as measured by 5-year credit default swap prices for Lehman Brothers and Merrill Lynch.  We also include each company's stock price.  As shown, default risk has increased significantly for both LEH and MER this week, and it is quickly approaching the highs reached in March.  While CDS prices aren't at their March highs yet, the stocks are much lower than they were then.

Leh

Mer

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Friday
Jul112008

NYSE Short Interest Hits Record Highs...Again.

Yesterday, the NYSE and NASDAQ both released short interest statistics for the month ending in June, and for each exchange, short interest levels increased.  On the NYSE, short interest rose to yet another record high, up 2.67% to 18.125 billion shares.  Looking at figures for the S&P 500, short interest as a percentage of float for the average stock rose from 5.8% to 6.0% of float.

Sp_500_short_interest_071108

A look at the stocks in the S&P 500 with the highest short interest shows exactly where the trouble lies- Consumer Discretionary and Financials.  Of the twenty stocks with the highest short interest as a percentage of float, seventeen of them come from those two sectors.

Highest_short_interest_0710

Thursday
Jul102008

Uninterrupted Declines

If you've forgotten what a rally feels like, you're probably not alone.  The S&P 500 hasn't had a 2% gain (in one day or over multiple days) since early June.  In the top chart below, we show all periods where the S&P 500 went more than thirty days without a 2% rally.  As shown in the chart, these uninterrupted declines are not too uncommon, as there have been 75 other periods since 1940.  What makes this period more painful, however, is the magnitude of the declines during this stretch.  Since June 5th, the S&P 500 has declined by 11.4% without a 2% rally in between (lower chart), which makes this the sharpest uninterrupted decline since February 2003.  The drought of rallies, compounded by the fact that any rally is more than erased the next day, make this one #%$& of a market.

Rallies_without_declines

Thursday
Jul102008

AAII Bearish Sentiment

Yesterday, we highlighted the ten-year high in bearish sentiment as measured by Investors Intelligence.  Today, the American Association of Individual Investors (AAII) released its weekly poll of individual investor sentiment, and while this poll showed that more than 55% of investors were bearish, the current levels still remain below the peaks we saw in March and January of this year.

Aaii

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Thursday
Jul102008

ProShares Ultra Short and Ultra Long ETFs

Market participants know that the ProShares Short and UltraShort ETFs have become wildly popular.  These ETFs allow investors with long-only accounts to easily bet against the market or hedge their bets.  The ProShares Ultra ETFs provide either double or double the inverse of the daily returns of the asset classes they track.  In the current market environment, the UltraShort ETFs have been huge winners.

For those interested, below we highlight all of the ETFs currently offered by ProShares.  We also include the year-to-date performance of each one, along with its current percentage from its 50-day moving average (to measure overbought/oversold levels).  As shown, the Ultrashort Financial ETF (SKF) is up a whopping 67% year to date, as financial firms have fallen across the board.  SKF is trailed by the Ultrashort Semiconductors (SSG), Ultrashort Russell 1,000 Value (SJF), and Ultrashort Dow30 (DXD) as far as year-to-date performance is concerned.

Because the ETFs attempt to track the daily performance of the underlying indices, the longer-term performances can get out of whack.  Not taking dividends into account, the Ultrashort Oil&Gas ETF (DUG) is down 12.45% year to date, but the Ultra (long) Oil&Gas ETF (DIG) is down 7.29%.

Proshares1

Proshares2

Proshares3   

Thursday
Jul102008

The New Bankers

Besides the 74% premium of the proposed deal, this morning's announcement of Dow Chemical's (DOW) buyout of Rohm and Haas (ROH) for $78 per share in cash had another noteworthy aspect to it concerning the funding of the deal.  In the third paragraph of the press release, DOW says:

Financing for the acquisition includes an equity investment by Berkshire Hathaway and the Kuwait Investment Authority in the form of convertible preferred securities for $3 billion and $1 billion respectively.  Debt financing has been committed by Citi, Merrill Lynch and Morgan Stanley who acted as financial advisors on the transaction.

Since when have the government of Kuwait and Berkshire Hathaway become bankers for M&A deals?  While this is the first transaction we have seen where the Kuwait Investment Authority has helped finance a major merger, it is the second deal in recent months where Berkshire Hathaway has been involved.  With the brokerage firms so strapped for cash, we wonder at what point companies in need of financing will bypass them altogether.

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Thursday
Jul102008

Sector P/E Ratios

Many market participants continue to stress that estimated valuations for the market remains low, making equities attractive.  The problem is that these are estimates, and until the actual earnings come through, it's hard to go by analyst expectations, especially in this market environment.

While estimated valuations might be low, the trailing 12-month P/E ratio for the S&P 500 is not.  As shown below, the trailing P/E for the index is currently at 20.54, and just a couple of weeks ago, it had risen to its highest levels in years.  Even at 20.54, it is higher than it was when the market peaked in October.

Along with the S&P 500, we provide historical trailing P/E ratios for the nine major sectors.  We left Telecom out because its P/E is currently negative (not good).

Spxpe

Finlindupe

Techenrspe_2

Hlthpe

Utilpe

Condconspe

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Thursday
Jul102008

Dividend Yields Soar

After yesterday's severe declines in the Financial sector, the indicated dividend yields on many of these companies have become laughable.  Bank of America yielding 11.6%!  Wachovia yielding 10.5%!  Many of these dividends are going to have to be cut for these companies to stay solvent, but for ones that are able to continue with their regular payouts, share owners will be getting quite the yield.

Below we highlight stocks in the S&P 500 with the highest indicated dividend yields.  If you're buying these names because the yield looks too good to be true, remember that it probably is.

Divyield

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Wednesday
Jul092008

Heavily Shorted Lead The Declines

Yesterday, the shorts covered.  Today, the shorts piled back in.  The average stock in the Russell 1,000 was down 2.26% today.  As shown below, the two deciles (100 stocks in each decile) of stocks with the highest short interest were down the most, while the deciles with the least short interest were down the least.  Any thoughts that yesterday's move higher was some kind of turnaround day were quickly shot down today.

Deciledown

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Wednesday
Jul092008

Quantifying Frustration

How do you quantify frustration with the market?  The chart below may help.  Recently it seems that every time the market has an up day, it goes down the next day by a greater amount than it was up.  Based on a historical analysis of this scenario, the last 50 days are about as annoying as they get for the bulls. 

As shown below, an up day followed by an even greater down day has happened 15 times in the last 50 trading days.  Since 1940, this is easily the most times it has happened in this short of a time period.  And looking at the trend over the long term, it seems as though this scenario has been happening more and more since the start of the decade. 

Uponedownnext

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Wednesday
Jul092008

Energy Stocks Down 5 Days In A Row

The S&P 500 Energy sector has declined 9.3% over the last 5 trading days and closed the day lower every day.  Below we highlight prior times where the S&P 500 Energy sector has had a 5-day losing streak in the last ten years.  Following these losing streaks, the average return for the sector has been 0.43% on day six and 0.45% over the next week.  As shown in gray shading, the sector has closed higher on day six the last seven times it has had a 5-day losing streak.

5daylosing

Wednesday
Jul092008

USO Short Interest Ratio

Below we highlight a price chart of USO (oil ETF) along with its historical short interest ratio.  Up until the last month or so, the short interest ratio for USO was increasing steadily as the price of oil rose.  But the last couple of short interest reports have shown the ratio decreasing, meaning the shorts may have finally given up with the last big spike in oil. 

Usoshortinterest

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